A Faith-Based Recovery

Today we have something extraordinary for you to ponder. We call it, in the prescribed, politico-doublespeak of the times, a “recovery.” Allow us to elaborate for just a moment…

A “recovery,” as defined by the same economic talent that led us into mass speculative temptation in the first place, is a magical reversal of fortunes for the global economy.

What is this recovery based on? Glad you asked, because here comes the extraordinary part…it is underpinned by the hysterical, back-slapping delusion that comes from accepting that there is, in fact, a recovery. It is real, in other words, because we are told it is real.

Convinced yet?

As the late astronomer, Carl Sagan, was fond of saying, “Extraordinary claims require extraordinary evidence.” In the absence of such evidence, let us examine the faith-based foundation on which the stability of the world’s largest economy now rests.

Below are a few tenets all sworn Recoverites must accept, any and all evidence to the contrary be damned:

1. That a consumer economy can continue to grow exponentially, even as the consumers themselves are forced to economize…

Where once manufacturing, innovation and a solid savings base held sturdy the US economy, there is now consumption, a waning service industry and a fiscally constipating accumulation of debt.

With household liabilities as a percentage of disposable income running at almost 130% for the average American family, and official unemployment bubbling over a 26-year peak of 10.2%, it’s tough going at the mall…even for the mighty US consumer…and even after the government has bribed him to go out and spend!

Already GDP estimates for the September quarter were revised downward – from 3.5% to 2.8% – after it became clear that the effects of the Cash for Clunkers program – the governmental equivalent of economic Viagra – had worn off sooner than expected. Barely had the poor consumer got his pants off and his wallet out when his many embarrassing deficits became all too apparent.

2. That the notices of liability printed by the Feds – commonly referred to as “greenbacks” – will enjoy the infinite confidence and unyielding patience of the nation’s foreign creditors…

For the past year we have heard rumblings from the BRIC nations, in particular China, over the government-sponsored debasement of the greenback. Most recently, Liu Mingkang, the Middle Kingdom’s chief banking regulator, argued that the combination of a weak dollar with persistently low interest rates had encouraged a “huge carry trade” that was having a “massive impact on global asset prices.”

It is no secret that “dollar alternatives” are openly discussed among large holders of US paper. So shaky is the dollar, in fact, that even a (briskly discredited) rumor in an English paper about OPEC nations ditching the buck sent the world’s “reserve” currency into a tailspin, tipping off gold’s current trailblazing rise – itself another indicator of fear and loathing of the once almighty buck.

(As we were jotting these few words, midweek, the greenback had just fallen below one Swiss franc for only the second time ever, reaching a 15-month low on the dollar index and approaching a 14-year low against the yen.)

3. That those creditors will continue to reinvest said monies back into the increasingly regulated and overtaxed US securities exchanges…

And that’s to say nothing of the growing minority of American citizens and companies already, wisely, looking for ways to flee their own shores with the hope of doing business in more accommodating, less intrusive arenas.

4. That extorting money from current and future workers in order to allocate it to the nation’s least efficient industries is a positive long-term strategy…

Over the past year, the government of the United States of America has pumped more money into its flailing economy than the total value of all the gold ever mined in world history…doubled.

Before we go on, let us remember that each and every one of those dollars – and the trillions more splashed around by the do-gooder interventionalists of the world – are dollars that are NOT now available to private citizens or the thousands of small businesses that might have benefited from a little extra cash during this whole crisis.

The true opportunity cost of this gross misallocation of vital resources will, of course, never be known. What is known, however, is that said bailouts helped the federal budget deficit along to a post WWII record of more than $1.4 trillion in fiscal 2009. Treasury officials warn the national debt limit of $12.1 trillion may be reached and breached by as early as December.

5. That those still purchasing stocks are better informed than the industries’ insiders…

Insider selling increased during the latest week from $960 million in sales to over $1.39 billion. That compares with “buys” totaling just $160 million. The ratio of selling to buying has, at times during this stock market rally, stretched to as much as 31:1.

Is there something outsiders know that insiders don’t? Unlikely.

6. And, that the geniuses who missed the warning signs of the biggest bust up in modern financial history are the most qualified to guide us out of it…

Even up until the very eve of the crisis, elected and unelected politicians assured those who knew better that the vast and plentiful risks to the financial industry were contained. Clearly, they were not. At every juncture since then, those leaders and others have sought to impose the very measures – currency debasement, deficit spending, increased state intervention, bailouts, nationalizations etc. – that history tells us lead to outright ruin.

Sir Isaac Newton – himself a man of faith…and a devout student of alchemy – once wrote, “If I have seen further it is only by standing on the shoulders of giants.”

What is perhaps the most galling of this entire financial debacle is that, with the abundance of insightful economists history has granted us, today’s leaders should appear proud to be seen standing on the shoulders of earthworms.

That, in itself, is something even the most delusional among us ought to have serious trouble believing in.

The Daily Reckoning